India’s retail inflation fell to 7.04% in May from an eight-year high of 7.8% in April, helped by a supportive base effect been above the 6% for five months in a row ie the upper bound of the 2-6% tolerance range of RBI.
Sequentially, price increases remained elevated with the consumer price inflation index rising 0.94% over a month ago.
For the 1st time in ovr 2 decades, India’s CPI inflation (%yoy) has remained lower thn US inflation fr 9 months in a row!
Reasons:composition of inflation basket (eg: weight of imported items is low at ~11% in India’s CPI), higher Govt subsidies & measured post Covid stimulus in India!
The major driver of inflation continues to be uptick from global commodity prices. Food & Beverages inflation came in at 7.8% Y-o-Y( +1.5% M-o-M) led by usual culprits of cereals, vegetables and oils and fats.
Base effects to keep Vegetable & Cereals inflation high
Inflation in food and beverages was at 7.97% in May compared with 8.31% in April. A poll pegged May CPI inflation at 7.1%.
Again, Fuel and Light inflation is up 1.4% M-o-M
Fuels prices remain elevated adding to uncertainty. For next 6 months, base effects and fuel prices can keep inflation elevated
Fuel and light inflation stood at 9.54% in May against 10.8% in April.
Services inflation slowing. May keep CPI from shooting above recent high
RBI revised its FY23 inflation estimate to 6.7%, with Q1 at 7.5%. These
estimates are likely to be met as inflation appears to have peaked. Metal prices have
eased but oil still remains at multi-year highs. Supply side squeezes, however, are fast reverting now
Inflation in oils and fats was at 13.26% compared with 17.28% in April.
• Inflation in meat and fish was at 8.23% compared with 6.97% in April.
• Vegetable prices rose 18.26% in May over a year ago compared with 15.41% in April.
• Pulses inflation was at -0.42% compared with 1.86% in May.
• Clothing and footwear inflation was at 8.53% versus 9.85% in the previous month.
• Housing inflation stood at 3.71% compared with 3.47% in April.
India’s May Producers or Wholesale price inflation leaps to 15.88% vs 15.08% highest in May since 2012. Core Inflation at 10.50% Food Inflation at 10.89% vs 8.88% (MoM) while the WPI fuel and power basket inflation at 40.62% . Mineral inflation at 33.94%
Rising inflation has pushed India’s monetary policy committee to raise interest rates by 90 basis points over two meetings in May and June.
RBI has hiked 90bps taking the repo rate to 4.90.
The committee has shifted its stance to withdrawal of accommodation and is seen raising rates further at its next few reviews
We anticipate rates to at least reach the pre-covid levels before growth-inflation dynamics are re-evaluated.